Interview: NXP's Clemmer on IPO, future challenges

NXP Semiconductors began trading on the Nasdaq on Friday, Aug. 6, its share value seesawing along with the rest of the turbulent equity market.

Priced at $14—well below the earlier stipulated range of $18 to $21—the IPO shares came under pressure in early trading, dropping to a low of $12.99 before recovering by early afternoon to about $13.98. The shares initially managed only a 6 cent gain, or less than 1 percent, on the $14 offer price, but managed to stay relatively stable during a day during in which the entire equity market stayed mostly in negative territory.

Richard Clemmer, chairman and CEO of NXP (Eindhoven, Netherlands), told EE Times that the IPO was well received by institutional and retail investors. With NXP receiving most of the proceeds after expenses from the offering, the chip maker gets the chance to bolster its financial position, and management has no concerns about its long-term viability, Clemmer said.

With the IPO now completed, NXP's management focus returns to satisfying customers in a capacity-constrained market, according to Clemmer. "The biggest challenge that we have in the near term is making sure that we have sufficient capacity to support our customers," he said.

NXP's capital expenditure outlay for the first half of this year totaled $100 million; that compares with $80 million in capex for all of 2009. The company is working with Taiwan Semiconductor Manufacturing Co. Ltd. to increase capacity at a joint-venture fab in Singapore, and it is boosting its test, assembly and packaging capabilities, Clemmer said.

Excerpts from our interview follow.

EE Times: Does being a publicly traded company change how NXP relates with its various audiences?

Richard Clemmer: I don't think it changes our objectives or challenges. It's just that it raises the hurdles [we must clear] to improve our execution on a consistent basis.

EE Times: In the past, there were concerns about NXP's ability to survive because of the company's high long-term debt. Are you satisfied with your current financial position, and do you believe NXP will continue to be a viable long-term entity?

Clemmer: No doubt. In the second quarter, we had about $1.1 billion in earnings before interest, taxes, depreciation and amortization. Now that we have pushed out $1 billion of our debt from 2013 and 2014 to 2018, no significant debts are coming due until the second half of 2013, and [given our] strong cash flow we have no concerns about our debt position at all.

EE Times: What does the IPO mean for NXP's future prospects?

Clemmer: The IPO is significant for NXP in the continuation of our transformation and in positioning the company for leadership in high-performance mixed-signal semiconductors. The progress we have made in the past year and a half is quite amazing. The IPO is just another step in the progress that we need to continue to make.

EE Times: Is NXP getting all of the proceeds from the share sale, or are your private equity owners also getting part?

Clemmer: All of the proceeds of the primary shares sale will improve the balance sheet of NXP. Our shareholders are not selling any shares at the moment. They are prohibited from selling shares for six months. Most of our private equity owners, I would expect, would not be willing to sell their shares until the equity price improves to the extent that it would be above their costs.

In the case of Philips [former parent of NXP], the company has said, as detailed in our proxy statement, that they are reviewing the potential of transferring their ownership to a couple of pension plans so they would become long-term shareholders.

EE Times: How has the offering been received by investors?

Clemmer: The stock is being received quite well. The interest that we had from institutional as well as retail investors was clearly significant and encouraging. We have to see how trading develops.

Clearly, the overall environment, with the [negative U.S.] jobs report, isn’t creating a conducive atmosphere for a price increase at the current time. Offering the shares at the price we did gives our shareholders a solid base to improve from.

EE Times: Are the underwriters taking NXP up on its offer for them to buy 5.1 million additional shares at the offer price?

Clemmer: I think they are interested in doing that. To be truthful, we have been reluctant to offer more shares at the reduced price. After the bond transaction that we did a few weeks ago, which allowed us to move our maturities out to 2018, we decided to reduce the size of the IPO because of the current pricing situation. The offering is clearly at the low end of any expectations.

EE Times: It's a tough time to do an IPO. Was it the conclusion of the board of directors that you had to do this now?

Clemmer: We are still in the redesign process. We still have about $250 million to $300 million in savings to be implemented. We would like our new shareholders to be able to take advantage of the additional cost savings so that they get the benefits of the improved value and the significant growth in design wins that we have, which would yield us improved revenue growth.

EE Times: You joined NXP to see the company through some of its difficulties. Is your job done, and are you going to be leaving soon following the IPO?

Clemmer: I am completely committed to ensure we drive success in high-performance mixed-signal ICs. At least for the foreseeable future, I will continue in the current role.

NXP is a company that needs to get its cost of operations under control. This inefficiency is the biggest obstacle to them becoming a major player in the markets.
I hope the $250 to $300 million in 'redesign' savings stated by the CEO is meant to reduce the huge operational costs and not the loans.

When companies begin to make their cases and explanations on the pages of newspapers instead of design labs, you can be sure they have confidence and focus. This company must get its mojo back if it hopes to succeed. There is nothing in its strategy that hows that it can compete. It carries lots of costs and must learn to be lean.

NXP isn't the only company cautiously hiring. In some respect, chip vendors and other IT equipment vendors have been much more active in raising capital expenditure and payroll than other segments of the economy. Not that they are jacking up employment themselves but the situation is better than in other manufacturing sectors. Can you blame manufacturers for the guarded optimism?

In our modern world, companies are more interested in what the public thinks about their company. This is because it is the public that determines the net worth of a company regardless of whether it is technically superior or not.
No question, the CEO is bent on painting a positive picture of NXP - even though it is riddled with debts on which interests of about $300 million are paid annually.
Well they have just raised about $476 million which should pay off part of these loans. The thing is, the 34 million shares they sold, theoretically cost them about $114 million.
Now all they have to do is wait and see if these kind investors will drive the prices higher so they can enrich themselves further.